Consider an Economy described as follows.

Y = C + I + G

Y = 8,000

G = 2,500

T = 2,000

C = 1,000 + 2/3( Y - T)

I = 1,200 - 100r

A) In this economy, compute private saving, public saving, and national saving.

B) Find the equilibrium interest rate.

C) Now suppose that G is reduced by 500. Compute private saving, public saving, and national saving.

D) Find the new equilibrium interest rate.

Answer rating: 100% (QA)

Step ... View the full answer